Unrest in China: Worse Than Reported

From Yves Smith’s Naked Capitalism:

Sunday, February 1, 2009Unrest in China Worse Than Widely Reported

When we have featured articles that mention growing unrest in China, we’ve been told that it’s overblown. The usual arguments: most of the people losing their jobs in Guangdong were young women who could go back to the provinces; that the violence wasn’t organized and hence posed not real threat to the authorities; that the people who had lost their jobs could go back to doing what they did before, namely, subsistence farming.

I’ve had trouble with these arguments because they run afoul of history. Large scale internal migrations when driven by worsening economic conditions tend to be disruptive, as this Times Online article suggests (hat tip reader Paul):

Bankruptcies, unemployment and social unrest are spreading more widely in China than officially reported, according to independent research that paints an ominous picture for the world economy.

The research was conducted for The Sunday Times over the last two months in three provinces vital to Chinese trade–Guangdong, Zhejiang and Jiangsu. It found that the global economic crisis has scythed through exports and set off dozens of protests that are never mentioned by the state media.

While troubling for the Chinese government, this should strengthen the argument of Premier Wen Jiabao, who will say on a visit to London this week that his country faces enormous problems and cannot let its currency rise in response to American demands…..

Yves here, Note that Wen had taken the reverse line at Davos, that growth in China would remain “fast and steady”. That had struck me as amazingly bad poker. Japan has played up its basket case status, when it has in fact (until recently) had a robust export sector. Why? If the rest of the world thinks Japan is in terrible shape, no one will bust their chops for keeping the yen weak, which worked until carry trade unwinding drove it from the 115-125 level versus the greenback to its recent high of 86 and change. Wen should instead be stressing how bad things are. Back to the article:

However, a growing number of economists say the unrest proves that it is not the exchange rate but years of sweatshop wages and income inequality in China that have distorted global competition and stifled domestic demand. The influential Far Eastern Economic Review headlined its latest issue “The coming crack-up of the China Model”.

Yasheng Huang, a professor at the Massachusetts Institute of Technology, said corruption and a deeply flawed model of economic reform had led to a collapse in personal income growth and a wealth gap that could leave China looking like a Latin American economy.

Richard Duncan, a partner at Blackhorse Asset Management in Singapore, has argued that the only way to create consumers is to raise wages to a legal minimum of $5 (3.50 pounds) a day across Asia–a “trickle up” theory.